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Fictions of Income Tax

25 Pages Posted: 15 May 2010 Last revised: 9 Apr 2015

John Prebble QC

Victoria University of Wellington - Faculty of Law; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien; University of Notre Dame Australia - School of Law

Date Written: 2011

Abstract

We cannot have an income tax without a concept of income. For a number of reasons, our concept of income must be artificial. A principal reason is that income tax law generally taxes the results of legal transactions rather than their underlying economic substance, which causes a dislocation between tax law, on one hand; and business profits and other targets of tax law; on the other. In order to make income tax work at all, the law must make a number of assumptions that are not in fact correct, assumptions as to both the factual and the legal nature of the taxpayer’s income. Particular reasons for the dislocation between income tax law and economic profits are, inter alia, that the law taxes the legal substance of transactions rather than the economic substance, the problem of place, and the problem of time. The author uses the term “ectopia” to identify this dislocation. In this article, the author addresses criticisms made of the ectopia thesis, namely, that accountancy rules are similar in character to income tax rules, that more detailed legislation could cure these ills, and, especially, that the law is well used to fictions.

Keywords: Income Tax, Taxation (Beneficiary Income of Minors, Service-Related Payments and Remedial Matters) Act 2001, Trust Law, Tax Avoidance, Ectopia, Fictions, Jurisdiction, Timing, Dislocation

JEL Classification: K34

Suggested Citation

Prebble QC, John, Fictions of Income Tax (2011). Victoria University of Wellington Legal Research Paper No. 29/2011. Available at SSRN: https://ssrn.com/abstract=1604978 or http://dx.doi.org/10.2139/ssrn.1604978

John Prebble QC (Contact Author)

Victoria University of Wellington - Faculty of Law ( email )

PO Box 600
Wellington, 6140
New Zealand
+64 4 463 6311 (Phone)
Papers Indexed at HOME PAGE (Fax)

HOME PAGE: http://www.victoria.ac.nz/law/staff/prebble-scholarly.aspx

Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

University of Notre Dame Australia - School of Law

Sydney Campus, New South Wales
Australia

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